James Scholten, 51, of Byron Center, was sentenced to 20 months in federal prison on Tuesday after pleading guilty to tax evasion tied to a 13-year scheme that netted him more than $3.4 million in hidden income.

U.S. District Judge Jane M. Beckering also ordered Scholten to pay $868,707 in restitution to the IRS and sentenced him to three years of supervised release after his prison term.

A decade of hidden income

According to court records, Scholten stole scrap metal from his employer and sold the material for his own profit. He then deliberately withheld records of that income from his certified public accountant so the earnings would never appear on his tax returns.

Scholten pleaded guilty in January to one count of tax evasion.

"Cheating on your taxes is not only illegal, it is also not worth the risk," U.S. Attorney for the Western District of Michigan Timothy VerHey said in a statement. "Scholten knew he owed a lot of money to the government, had the money to pay, but decided to keep it for himself. Now he is going to prison and will have to pay his taxes anyway."

The numbers tell the story

Prosecutors highlighted a single year to illustrate the scale of the deception.

• In 2021, Scholten reported owing just $2,465 in federal income tax
• That same year, he earned an additional $610,818 from selling stolen scrap material
• The unreported income generated $172,618 in taxes he failed to pay

Over the full 13-year period, the unreported scrap metal sales totaled $3.4 million, according to the U.S. Attorney's Office.

"Scholten stole the scrap metal from his employer, sold it and failed to report that income to his accountant," the U.S. Attorney's Office said. "The accountant then reported only his legitimate income on his tax returns, underreporting his income by hundreds of thousands of dollars per year."

How the scheme unraveled

The case was investigated by IRS Criminal Investigation, the law enforcement arm of the Internal Revenue Service, and prosecuted by Assistant U.S. Attorney Chris O'Connor.

Karen Wingerd, Special Agent in Charge of the IRS Criminal Investigation Detroit Field Office, said the case demonstrates that employee theft combined with tax evasion can only be concealed for so long.

"Stealing materials from your employer and using them for your own profit can only be hidden for so long," Wingerd said.

Scholten is expected to begin his sentence at a federal facility after any direct appeals are resolved. He will remain under federal supervision for three additional years after his release.